Expect more hawkish language from the RBA having been vindicated on its bullish growth forecasts (and pretty much everything else post-GFC). I am also anticipating some elevated eyebrows directed at the Aussie consumer and household spending in particular. A key component of the RBA’s base-case narrative was the ‘new normal’ in consumer conservatism following the supposedly searing experience endured via the GFC. As I’ve recently argued here, this seems like an heroic assumption. On the fly now, but this is what NAB had to say today on the same subject:
“We doubt that the RBA will have shifted from its forecast of expecting around trend growth in the Australian economy over the year ahead and inflation close to target. But there will be intense interest in the wording of the statement.
We anticipate some shift in the language used by the RBA in today’s statement. First while there will still be some trepidation about prospects for the global economy – last time they noted that global prospects were somewhat more uncertain – but perhaps this degree of uncertainty has receded somewhat.
Where there will be keen interest will be in what the Bank has to say about the Australian economy in the wake of last week’s June quarter national accounts. And on two accounts. First, the base of growth in the June quarter was ¼% stronger than expected by the Bank for both total and non-farm GDP. That has tilted the odds in favour of upside risks to growth ahead.
Second, whether the RBA continues to couch consumers as being cautious. We have seen a tangible up-tick first in retail trade growth in June and July, culminating last week in the 1.6% growth in household consumption. This was the strongest growth since the September quarter of 2004.
The market is now priced for more upbeat language from the RBA with a 50% chance of a hike priced over the year ahead as opposed to a 80% chance of a cut priced early last week.”
